Letters to the Editor

Readers respond to our May/June issue

Sambuddha Mitra Mustafi asks in “Sino the times” (CJR, May/June), “Can China’s billions buy media credibility?” The problem with the China’s government-owned media is that every item of information is ideologically loaded. That there is no objective journalism to them means that there is nothing to be believed. Everything can be fabricated, whether it be information about milk, pharmaceuticals, or virginity. Secondly, their modus operandi is that there is an image war for them to fight. They must fight the Western media, whose messages they believe are negative. It may be worse than the Cold War. Thirdly, they think they will win because they have more money.

Frankie Fook-lun Leung
Los Angeles, CA

Fiscal fitness

I’m glad Mike Hudson is getting the appreciation he is due (“The reporter who saw it coming” by Dean Starkman, CJR, May/June). I purchased several copies of Hudson’s book Merchants of Misery: How corporate America profits from poverty and gave them to Massachusetts Treasurer Steve Grossman, Auditor Suzanne Bump, Rep. Mazie K. Hirono (D-HI), and members of the Boston City Council. There is an outcry about high school students being physically unfit. This is a fact. To be educated, students, and their parents must be fiscally fit to understand these schemes. Does your high school or community college have a course in Consumer Education? If not, why not?

J. David Reno
Boston, MA

And the fraud machine grinds on, doesn’t it? Hudson has long been one of the best in the business, staying on this story even after the “reforms” and settlements of the late ’90s. Hudson’s The Monster is a must-read. Strange how so few national news outlets have covered the story. Odder still that prosecutors have done so very little to collar the perps. One would think that the business practices Hudson has exposed are not some cancer on our economic body, but part and parcel of the capitalist system as it is now understood and practiced in the US.

Edward Ericson Jr.
Joppa, MD

If Mike Hudson stops by Yves Smith’s (author of ECONned) NC (naked capitalism) blog, he’ll see a lot of us who are among the few who understand what happened and how useless the Obama Department of Justice (DOJ) is on this. Despite Hudson’s work and the work of others that make clear how the cycling of money through securitization of the garbage loans with AAA bond ratings created fraudulent credit that destroyed the credit system, wrecked the economy, and ruined investors and banks worldwide, the MSM continue to perpetuate the “move along; nothing to see; this is about a lot of deadbeats” meme, rather than exposing it for what it was: massive fraud.

Unfortunately, Obama and his DOJ were worse than useless, so nobody has been prosecuted, and we are doomed to encounter even worse fallout a bit further down the road, because the rot has not been removed from the financial-services industry, and they own Congress and the president and the courts. I’m sure Hudson will be on this beat for the rest of his life!

Steve Schmandt
Nara, Japan

Where this story completely falls short for me is Hudson’s neglect in identifying the causation of the abuse he documents. If you don’t have the Community Reinvestment Act (CRA) that sets quotas for subprime loans, banks never learn about this market. If you don’t have Fannie Mae and Freddie Mac [together referred to as government-supported enterprises, or GSES] clearing the books of groups like Citibank by providing an unending supply of liquidity for all those second mortgages, how could they have written them? You only write a bad mortgage because you know there is a schmuck to sell it to. The schmuck was the US taxpayer holding the bag for Fannie and Freddie. Where is that in this great piece of investigative journalism? If Citibank has to keep those mortgages, they go under. No reason to even mention the fact that the exclusion of real-estate profits from capital gains in 1997 fueled a speculative bubble when talking about the meltdown. I appreciate the knowledge about the corruption, but it doesn’t take place without Fannie and Freddie and the Community Reinvestment Act.

Dave Thomas
Los Angeles, CA

Dean Starkman responds: I appreciate Thomas’s acknowledgement of the corruption issue. However, Hudson’s exploration of corruption in the US mortgage-lending system was spot on. Post-crash investigations, including the Financial Crisis Inquiry Commission (FCIC) and the Levin-Coburn commission, have concluded—and data show—that private-sector loans, fueled by the Wall Street aftermarket, were indeed the central cause of the mortgage crisis (and thus the financial crisis), while the factors Thomas cites were not.

As many commentators have noted, there are a number of things to be mad at the GSES about—their use of political clout to ward off oversight, their mid-2000s accounting scandals, their purchases of Wall Street-created subprime securities, their huge losses caused by the sheer size of their portfolio, etc.—but data show they never bought subprime mortgages per se. They did buy Alt-A (poorly documented) loans, but did so late, most aggressively in 2006, and only after losing market share to the private sector, which had vastly expanded and dominated the subprime/Alt-A market. And even after they lowered standards, the loans the GSES bought or backed significantly outperformed those in the private sector: Even for a subset of borrowers with similar credit scores—below 660—FCIC data show that GSE mortgages were far less likely to be seriously delinquent than were non-GSE securitized mortgages: 6.2 percent versus 28.3 percent, as of the end of 2008. Online readers can find more in the FCIC report and in condensed form in columns by Bethany McLean and Joe Nocera.

As for the CRA, the argument for the centrality of a 1977 law in a mortgage boom three decades later is even more far-fetched, but suffice it to say that the FCIC found that only 6 percent of all “high-cost” (subprime) loans had any connection to the law, which didn’t even cover some of the worst actors—non-banks like Ameriquest, Countrywide, and the rest.

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